What Lies Beneath? A Look At America’s Wallet | ANA

Ian Wright

What demographic data doesn’t reveal about consumers — and what financial durability does

Marketers are continuously challenged to deliver more quality leads and demonstrate their value. The pandemic has only amplified this burden and made this task all the more difficult by driving massive economic uncertainty. The situation has left marketers under pressure to ensure the funds left in their reduced budgets are applied strategically and that the consumers with whom they engage are the best candidates.

To find the right audiences for their messaging, brands will need data that can help determine a consumer’s financial durability.

At its most basic, financial durability means a consumer’s ability to weather an economic storm. It looks beyond just a credit score, or even consumer engagement, to determine if a prospect would actually make a good client.

For instance, imagine two couples both ready to purchase their starter homes and eager to invest in their futures. At first glance, these couples are almost identical: first-time home buyers of the same age with similar incomes and credit scores.

Though both couples appear to check all of the same boxes, data can help identify stark contrasts that would place them in entirely different camps. With the right input, it’s revealed that the first couple is financially durable; they can buy the house, remodel the kitchen, and still keep their emergency fund intact. However, the other couple is far from durable; they’re just barely able to cover the closing costs.

This new lens separates the seemingly similar pairs into two different buckets: qualified leads who have the potential to become valuable customers and leads who don’t yet qualify but may provide value elsewhere or in the future. By digging into the data, financial durability can segment consumers into high and low durability groups.

The highest durability consumers have a robust economic foundation and resilient spending capacities. According to Equifax data, this group makes up 36 percent of U.S. households. High durability consumers mainly skew older and more urban. In contrast, the lowest durability segment holds higher risk, faces greater challenges meeting their financial commitments, and their economic foundations are weaker than their high durability counterparts. This group comprises nearly 40 percent of U.S. households.

By using the right data to identify the differences between two outwardly identical couples, a brand can make more informed choices about how to market to them based on the state of their financial durability. This approach can help marketers develop more strategic campaigns, which in turn will help them prove their worth and see a greater return on their marketing investment.

Determine Durability and Its Driving Force

Financial durability is comprised of three key factors: affluence, income, and capacity.

The most important component is affluence, the bedrock of a consumer’s economic foundation, investments, and bank deposits. Notably, as the Equifax Wealth Trends Report for 2019 shows, 60 percent of households in the U.S. have less than $100,000 in total household assets.

Affluence directly affects durability and purchasing behavior. It is what a consumer is able to fall back on if their wages were to suddenly decrease or stop. If consumers are feeling flush, they might still take a special vacation, even if times are challenging. But if they don’t have a financial cushion, they may opt instead for a staycation.

Next, total household income is a major driver of a consumer's discretionary spending. Discretionary spending capacity is what’s left after all the bills are paid. It first looks at the total salary, adds in money coming in from investments, businesses, social security, and retirement savings, and then drops out necessary expenses to find discretionary spending ability.

Finally, capacity refers to a consumer’s financial commitments or capability to handle outgoing flows and additional risks. Essentially, can the individual comfortably take on new financial responsibilities or are they already straining to meet existing obligations?

When a person has high levels of affluence, income, and capacity, they have greater financial resilience, making them financially durable. And while other factors should still be considered, like age, marital status, geography, and behaviors, first determining a consumer’s economic status is key to understanding what might drive their purchase decision-making.

It’s Time for Better Targeting

To maximize returns, it’s crucial to precisely target prospects. With the full effect of COVID-19 still unfolding, the question of durability and who will come out strong on the other end is increasingly relevant. Marketers are called to be even more selective in their spending and need to seek out the consumers who not only want their products but can afford to purchase them again and again, becoming high lifetime value customers.

When considering a target’s financial health, age matters too. Millennials seem to get the lion’s share of marketing attention, but they hold only 9.7 percent of investable assets. It’s the baby boomers and the preceding generation that have a staggering 64.7 percent of investable assets, according to the Equifax Wealth Trends Report. So, while it’s prudent to gain loyalty early, the older generations have the money now and can increase their spending as the brand grows.

Also, it’s important for marketers to consider how durability plays out across the country.

In major metropolitan areas, there are large subareas of both high and low durability. While no city has exclusively all high or all low areas, large areas of one or the other are common in rural parts of the U.S. While these less populous regions generally have low durability, there are large pockets of high durability too. It takes a multidimensional view to fully understand the fabric of a place and the people within it. Maintaining a clear view of the geofinancial landscape can help marketers develop a more informed and effective marketing plan.

Act on the Right Insights

Once it’s clear where the right targets lie on the scale of financial durability, marketers can customize their messaging accordingly. Depending on their goals, they may choose to exclude those with low durability entirely or attempt to meet their specific needs with more basic offerings.

Consumers with high durability should be protected and further developed. They represent the value a company can build over time, and they hold the highest opportunity for growing MVP customers who have a high lifetime value. This is where more traditional marketing insights like demographics and intent data come back into play and help in perfecting a brand’s approach.

It takes the right data to reveal the best way forward. Marketers have unprecedented access to an overwhelming amount of data, but not all of it provides accurate, actionable insights. In fact, a lot of options provide incomplete, limited insights. Financial durability is the clearest path to understanding today’s customers and how likely they are to buy a company’s products or use their service today and well into the future.

Ian Wright is the chief data officer for data-driven marketing at Equifax, a partner in the ANA’s Data Tech Partner Program. You can email Ian at ian.wright@equifax.com.

This post was initially published in ANA Forward Publication.

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